KRUGMAN: Permahawkery---Being an inflation hawk means never having to say you’re sorry.
Permahawkery
APRIL 1, 2014, 9:25 AM 14 Comments
Martin Feldstein warns us that the Fed isn’t taking the risk of rapidly rising inflation seriously enough. Certainly nobody can accuse him of that failing: he’s been warning about looming inflation for four years, eleven months,and two weeks, and hasn’t let the fact that inflation has kept falling below target alter his concerns in the slightest.
In fact, Marty’s new column is almost identical in its argument to what he wrote in April 2009: he warns that the Fed won’t pull back the liquidity it created when the economy recovers, and inflation will soar. What’s interesting now is that he freely admits that the Fed does, in fact, have multiple instruments with which to pull back liquidity and forestall inflation if recovery ever really comes. It can raise the interest rate on reserves; it can sell securities. But he worries that it won’t do these things because it will be embarrassed if it finds itself paying more in interest than it is earning on its portfolio.
Might we suggest that the answer here is, don’t be embarrassed? We’re talking about trivial sums — I’m not sure if Treasury has already promised to hold the Fed financially harmless, but if not it could easily be arranged. The point is that this has to be one of the weakest policy arguments I’ve ever seen: Arguing that the Fed should shy away from doing all it can to create jobs because you’re afraid that at some point in the future Fed officials will be insufficiently hawkish because they’re afraid that people will make fun of them.
But being an inflation hawk means never having to say you’re sorry.
http://krugman.blogs.nytimes.com/2014/04/01/permahawkery/?_php=true&_type=blogs&module=BlogPost-Title&version=Blog%20Main&contentCollection=Opinion&action=Click&pgtype=Blogs®ion=Body&_r=0
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